Question

State the differences between the fixed capital method and fluctuating capital method.

Answer 1

S. No.	Basis of distinction	Fixed capital method	Fluctuating capital method
1.	Number of accounts	Two accounts are maintained for each partner, that is, capital account and current account.	Only one account, that is, a capital account is maintained for each partner.
2.	Change in Capital	The amount of capital normally remains unchanged except when additional capital is introduced or capital is withdrawn permanently.	The amount of capital changes from period to period.
3.	Closing balance	Capital account always shows a credit balance. But, current account may show either debit or credit balance.	Capital account generally shows a credit balance. It may also show a debit balance.
4.	Adjustment	All adjustments relating to interest on capital, interest on drawings, salary or commission, share of profit or loss are done in the current account.	All adjustments relating to interest on drawings, salary or commission, share of profit or loss are done in the capital account.